Gibraltar entered the EC at the time of the accession of the United Kingdom. It is among the European territories for whose external relations a Member State is responsible under Article 227(4) of the EC Treaty. Article 28 of the Act concerning the Conditions of Accession and the Adjustments to the Treaties (which concerns the accession of the UK, Denmark and Ireland) provides that there shall be certain exceptions from Community measures with respect to Gibraltar (the CAP, VAT and CCT do not apply). Subject to these explicit exceptions, all legislation adopted by the Community since 1973 has been applicable to Gibraltar.

All the Treaty provisions on the free movement of capital, services and persons apply fully to Gibraltar. The fourth 'freedom' on movement of goods is restricted by Gibraltar's position outside the Customs Territory, although in effect this is largely mitigated by the application of the Generalised System of Preferences to Gibraltar.

Under the 1969 Gibraltar Constitution Order, Her Majesty's Government has responsibility for Gibraltar's defence, internal security and external affairs whilst the Gibraltar Government has, both by definition and convention, responsibility for all domestic, including fiscal, matters. Because of this constitutional relationship with the United Kingdom, the application of Community Law in Gibraltar is legislated by Gibraltar's House of Assembly. This effectively enables the Gibraltar Government to comply with the guidelines or requirements laid down by EC directives within a framework that can be adopted to promote or enhance Gibraltar's competitiveness. No other territory, city or town within the Community is able to structure and regulate its own Community status in such a way.

Because of its size - indeed its geographical access inside the physical boundaries of Southern Europe - Gibraltar offers a unique base from which to service individuals or companies seeking to tap or widen their financial, commercial or trading interests and activities in the expanding European markets. The necessary infrastructure is already in place. Communications have been upgraded to the highest international standards. Space is no longer a constraint, with a large scale reclamation programme that has now attracted substantial private investment for the construction of sufficient offices and warehousing facilities. There is a strong and growing professional body of UK qualified lawyers and accountants as well as a wide and reputable banking presence, operating under UK based laws. Gibraltar's currency is based at a par with sterling.

The Gibraltar Government itself has introduced enabling legislation to allow for a swift and flexible response to the changing demands which emerge in today's highly competitive economic environment. Tax legislation, for example, has been amended to provide for qualifying companies engaged in international business to pay tax ranging from a minimum of 0% to a maximum rate of 35%.

Banking and insurance legislation has also been introduced on UK lines, with supervision by an independent regulatory authority, the Financial Services Commission. In effect, the Gibraltar authorities can issue insurance licences which are Community wide.

Any change in the arrangements for Gibraltar's terms of membership would require an amendment to the Treaty of Accession of the United Kingdom, which would in turn require the agreement of all other Member States. No such change is envisaged.